Emerging Trends in Micro Finance in Rajasthan
Introduction
In March 1978 seven years after the independence of Bangladesh, a small group of men joined together to make a secret pledge. They vowed to create a new and dynamic organization dedicated to fighting poverty. The Association for Social Advancement (ASA) targets Bangladesh’s poorest villagers, many of them women, offering tools to create better lives. “Microfinance” movement dedicated to expanding access to small scale loans, saving accounts, insurance, and broader financial services in poor and low income communities. Their bet is that access to microfinance can offer powerful ways for the poor to unlock their productive potential by growing small business.
In recent periods considerable emphasis has been placed on strengthening credit delivery mechanism with special focus on promotion of microcredit enterprises in the dispensation of rural credit. The pioneer of the movement Muhammad Yunus was awarded Noble Peace Prize in the year 2006. Entrepreneurs, academics, social activities and development experts from around the world as also in India recognize Micro Credit Groups as an effective tool for achieving the target of growth with social justice. Microfinance covers the delivery of the Banking and other financial services at affordable cost to the vast sections of disadvantaged and low income groups. Microfinance refers to a movement that envisions a world in which low income households have permanent access to a range of high quality financial services to finance their income producing activities, build assets, stabilise consumption and protect against risks. These services are not limited to credit but include savings, insurance, and money transfers. More importantly these services are group based lending and liability. Recognising the success in other countries and limited success achieved in Indian antipoverty scheme RBI set up a Micro Credit Special Cell in April 1999 which submitted its report in January 2000. Earlier the NABARD appointed a Task Force on supportive policy and Regulatory Framework for Micro Credit in November 1998 whose report was presented to NABARD. These two reports have guided the shaping of policy initiatives on microcredit. Now there are more than 154 million borrowers and 33.5 million savers world over and these numbers are growing at 25 per cent per annum. The microfinance sector in India has more than 3000 MFI – NGOs existing of which 400 are active in lending activities according to a CRISIL Report. Table1.1shows the results of a survey conducted by Micro Credit Summit Campaign.
Table 1
Growth of Microfinance Coverage as reported to the Micro Credit Summit 1997-2007
End of Year
|
Total Number of Institutions
|
Total number of Clients reached (millions)
|
Number of poorest Clients reported (millions)
|
1997
|
655
|
16.5
|
9.0
|
1998
|
705
|
18.7
|
10.7
|
1999
|
964
|
21.8
|
13.0
|
2000
|
1477
|
38.2
|
21.6
|
2001
|
2033
|
57.3
|
29.5
|
2002
|
2334
|
67.8
|
41.6
|
2003
|
2577
|
81.3
|
55.0
|
2004
|
2814
|
99.7
|
72.7
|
2005
|
3056
|
135.2
|
96.2
|
2006
|
3244
|
138.7
|
96.2
|
2007
|
3352
|
154.6
|
106.6
|
Source – “The Economics of Microfinance” 2nd ed. By Armendariz B and Morduch, JMIT Press, London, ch.1.
It is evident from the Table-1 that by the end of 2007 the campaign had reports of 154.6 millions microfinance clients served worldwide over 3350 MFIs. Of these clients 106.6 million were reported as being in the bottom half of those living below their nation’s poverty line.
Microfinance presents a series of exciting possibilities for extending markets, reducing poverty, and fostering social change. But there are some Unsolved Puzzles and I hope the present seminar will address to some of these debates and assumptions. These are:
(i) Whether the poorest are best served by loans or by better ways to save.
(ii) Whether subsidies help the poor in absence of better training, skills and market assistance.
The scheme of microcredit as conceived by Grameen Bank has been based on innovative practices. The formal lending programme has been facing three important difficulties.[1]
(i) Problem of exact targeting.
(ii) Problem of screening (distinguishing the good (creditworthy) from the bad (non-so-creditworthy) of borrowers.
(iii) Problem of monitoring and ensuring the productive use of loans and the repayment of loans.
These difficulties have been overcome in the microfinance model. The problem of targeting has been addressed directly by specifying the member’s eligibility requirement on the basis of asset ownership and indirectly by making the loan amount small and laying down other conditions, such as attendance at the weekly member meetings, so that the non poor are discouraged from borrowing.[2] The problem of screening has been solved through group formation. The concept of group borrowing is based on the belief that the society to which poor belong has strong hold and understands the individual better. Moreover the activities in which the poor are engaged cannot go wrong in terms of raising income and repayment of loan. Finally, the problem of monitoring the loan usage and enforcement is taken care of individually as well as through the groups. The bank insists on putting the loan to the use specified by the borrower strictly within a period of seven days. Further, it follows a system of weekly repayment of small amount. With such innovative practices the microfinance has become so popular and an effective tool in fighting rural poverty.
Concept of SHG
Self Help Group (SHG) is a small Voluntary association of poor people preferably from the same socio-economic background. They came together for the purpose of solving their common problems through self-help and mutual help. The SHG promotes small savings among its members. The savings of the members is kept with a bank. This common fund is in the name of SHG. Usually the number of members in one SHG does not exceed twenty. The concept of SHG is based on the following principles:
· Self-help supplemented with mutual help can be a powerful vehicle for the poor in their socio economic development.
· Participative financial services Management is more responsive and efficient.
· Poor need not only credit support, but also savings and other services.
· Poor can save and are bankable and SHG, as clients result in wider out reach.
· Creation of a common fund by contributing small savings on regular basis.
· Flexible democratic system of working.
· Loaning is done mainly on trust with a bare documentation and without any security.
· Amounts loaned are small, frequent and for short duration.
· Defaults are rare mainly due to group pressure.
· Periodic meetings, non-traditional savings.
Need of Financial Services
Microfinance programme is currently being promoted as a key strategy for simultaneously addressing both poverty alleviation and women empowerment. It has been well established fact that poor have temporary surpluses and they are in need of services to keep their savings safe. There are certain misconceptions about the poor people that they need loan at subsidized rates of interest on soft terms, they lack skills, capacity to save, creditworthiness and therefore are not bankable. There are well documented studies to confirm the fact that rural poor are actually efficient managers of credit and finance. There are also some misconceptions about the microfinance. These are:
1. Microfinance is essentially a loaning programme.
2. The secret of better repayment rates on loans is tied closely to the innovative technique of group lending.
3. Microfinance has a clear record of social impacts and is a major tool for poverty reduction and gender empowerment.
4. Micro financing sector has no problems and making profits.
Why doesn’t capital naturally flow to the poor?
If the poor are creditworthy, they have skills, they pay their loan in time and make profit then why banking sector does not provide finance to them without any intervention. Some economists argue that poor borrows can pay high interest rates as they face the concave production frontier. They are already borrowing from local money lenders but government’s restrictions on interest rates for institutions. This might be one of the reasons that hinders flow of finance to the more risky and fragmented sector such as micro finance. If this is the case then the issue is wholly political. If government lifts restrictions and usury laws the finance will flow automatically without a heavy burden of subsidy on public exchequer. But reality is more complicated Banks have incomplete information about poor borrowers whereas the “Sahukars” (Traditional Money Lenders) have perfect information and choose only the right person for lending. The “Sahukars” charge exorbitant rate of interest due to their perfect contact and their nature of ready to help. Because of these facts institutional credit has a little off take despite all efforts for last six decades. The micro finance has some success stories in recent period. There are many success stories in microfinance like SEWA at Ahmedabad and Padmavathy at Tirupati.
Rajasthan
In terms of size, Rajasthan is now the largest state in the Indian Union. It has a population of 5.5. Crore (2001 Census) With an average population density of 165 persons per Km, (24th in terms of population density in India) with much denser human settlements in the Eastern part, than in the Western desert area. Rajasthan has 10.41% of the land areas of the country. Its total population is 5.5% of the country and it ranks 8th in population size. Despite spectacular progress in spread of literacy from 1997-2000 Rajasthan ranks 29th in terms of literacy in the country.
Despite the six decades of planned development the per capita income of the population is 25% lower than the national average. The primary sector dominates the essentially agrarian economy with 2/3 of the population dependent on agriculture for their livelihood. Rajasthan finds it place in almost bottom in the 15 Major States in the Country.
The Self Help movement started more as social mobilization of women for their better place in family and society rather than microfinance movement in Rajasthan. Many Voluntary Organisations had been working with poor organizing them in Village Development Committees. But participation of Women in these VDCs was sub optimal. So they started separate group of Women ‘Mahila Smooh/or Mahila Mandals as sub set of larger village institution purely with a purpose of having increased participation of women in development.[3] There are approximately 1.5 SHGs of Women in Rajasthan. These group undertake off Farm Activities like sewing, dari, galicha, candle, chalk, agarbatti, achar, badi, papad, handcrafts etc. But due to lack of proper marketing networks and many other reasons there was a mixed experience.
Rajasthan Department of Women and Child Welfare organises “Anganwadi” workers and “Sathins” in ICDs project. Department of Rural Development organises BPL families under SGSY (Swaranjayanti Gromeen Swarozgar Yojana) through NGOs. NABARD and Banks also forms SHGs with the support of NGOs and finance them. Government of Rajasthan has organised total 26263 SHGs of these 11212 SHGs are Women SHGs. The progress of SHG is given in table-2.
Table-2
SHG Bank Linkage (From NABARD)
Year
|
No. of SHG credit Linked
|
Loan Amount (Rs. In Lakhs)
|
Refinance
(Rs. In Lakhs)
|
2002-2003
|
22742
|
2184
|
1472
|
2003-2004
|
33846
|
2588
|
992
|
2004-2005
|
59906
|
6723
|
2865
|
2005-2006
|
79584
|
4344
|
924
|
Department of women & Child Welfare has formed 1,00424 SHGs in the state and mobilized Rs 4634 lakhs. The number of groups who have taken loans from bank is 38138 whereas the loan amount was Rs. 7182 lakhs till Nov. 2005. In every district there are 5-10 organizations that are organizing SHGs either on their own or in collaboration with government. Most of the voluntary agencies have promoted 50 to 100 SHGs. But the problem is big in the state have a look at these figures.
Table-3
Persons below Poverty Line (1997-98 %)
1.
|
National Sample Survey
(a) Rural
(b) Urban
(c) Combined
|
Rajasthan
26.46
30.49
27.41
|
India
37.27
32.36
35.97
|
2.
|
National Sample Survey
(a) Rural
(b) Urban
(c) Combined
|
13.74
19.85
15.28
|
27.09
23.62
26.10
|
In Rajasthan there is however considerable Regional variation in the poverty profile. The table below summarises poverty profile of the different regions in the state.
Table -4
Regional Variations of Poverty in Rajasthan
Regions in Rajasthan with Districts
|
Poverty Levels Percentage
|
Western
Ganganagar, Hanumangarh, Bikaner, Churu, Jaisalmer, Jodhpur, Nagaur, Pali, Barmer, Jalore, Sirohi
|
16.9
|
North Eastern
Jhunjhunu, Alwar, Bharatpur, Dholpur, SwaiMadhopur, Jaipur, Sikar, Ajmer, Tonk, Bhilwara, Dausa
|
17.33
|
Southern
Udaipur, Dungerpur, Banswara, Rajsamand
|
30.83
|
Southe Estern
Chittorgarh, Bundi, Kota, Jhalawar, Baran
|
28.69
|
It is clear from the above explanation that the proportion of urban and rural poverty in Rajasthan is lower than the national average. Proportion of people living below the poverty line is significantly higher in rural areas, though urban poverty is also a cause for concern. BPL families largely belong to agricultural labour, marginal farmers and small farmer categories. Tribal districts in southern part of the state have the highest poverty ratios. Women in Rajasthan suffer disproportionately from deprivation of various types this can be summarised from the following data:
Status of Women and Children in Rajasthan
Indicators
|
Rajasthan
|
India
|
Literacy Rate
|
44.34
|
54.46
|
Gender Ratio (Female per 1000 males)
|
922
|
933
|
Total fertility Rate
|
4.2
|
3.4
|
Maternal Mortality Rate
|
670
|
540
|
Percentage of Women with anaemic
|
49.0
|
-
|
Infant Mortality Rate
|
80
|
68
|
Percentage of Children Underweight
|
50.6
|
47
|
Percentage of Children with anaemia
|
82.3
|
743
|
Thus, poverty does not have only economic sufferings. There are many other dimensions. There is a correlation between poverty, women’s empowerment, literacy & health. The SHG based on microcredit have been instrumental in women empowerment in rural areas. The studies conducted at micro level show that mobilisation of savings is a valuable service that SHG can provide the rural population in Rajasthan. In some parts of the country there is a movement to utilise the collected savings of such poor unorganised people to provide them access to credit for financial needs, like working capital, remittances, housing etc. for which the formal credit institutions have failed to create workable financial products and ensure access for inclusive growth. Microcredit would help in supplementing access of the poor to non-exploitative sources of non institutional consumption and production credit. Now there is a need for providing them support at policy level.
The major issues that need to be addressed are:
· Access of poor to formal financial institutions.
· Quality of the existing SHGs – only 30% SHGs have been able to take loan from banks.
· Spread of the movement: About 80 per cent of SHGs are located in 30 per cent of the districts.
· Microfinance should expand beyond credit & savings.
· Human Resource challenge needs to be addressed. Skilled persons are very less.
· Training for women empowerment.
· Improve marketing opportunities for rural products.
· Identification and Transfer of suitable technology, new materials
· Coordination in various credit agencies at district/block level.
The success of microfinance programme depends in part studiously avoiding the mistakes of the past. Huge subsidy based programmes have larger risks to failure because the benefits are taken away in larger proportion by rich and well-to-do farmers. India’s IRDP is the perfect example of this inefficient subsidized credit. While the words microcredit and microfinance are often used interchangeably they have different resonances. Microfinance which is a broader term embraces efforts to collect saving from low income households provide insurance, distribution and marketing support. Thus microfinance is a new market based strategy for poverty reduction, free of heavy subsidies and a win-win solution for all the participating units.
Prof. M.K. Ghadoliya
Deptt. of Economics
VMOU, Kota (Raj.)
_____________________________________________________________
Paper presented at national seminar on “Microfinance and Rural Transformation “September 14-15, 2011” organised by Devi Ahilya University, Indore
